China's Supreme People's Court (SPC) is about to issue a significant judicial interpretation, stipulating the recognition and enforcement of foreign judgments in China. Judge Song Jianli (宋建立) (Judge of the SPC’s 4th Civil Division) introduced the content of the judicial interpretation.

A month ago, Judge Song Jianli published an article titled "Recognition and Enforcement of Foreign Judgments in China: Challenges and Developments". According to the article, the SPC is currently working on the “Judicial Interpretation of the Recognition and Enforcement of Foreign Judgments”（《承认与执行外国判决的司法解释》）which has now been revised to the fifth draft (hereinafter referred to the “Fifth Draft”). The Interpretation is planned to be issued in the first half of 2019 in conformity with the SPC’s scheme.

(CJO Note: Since it is not easy to understand the original English of this article, we make some slight adjustments where appropriate, based on the discussion by the SPC on various occasions, so that readers can gain a clearer standing of Judge Song’s viewpoints.)

1.Highlights of the Fifth Draft

Judge Song Jianli finds worthy of attention the following five key points in the Fifth Draft.

Firstly, the definition of foreign judgments in civil and commercial matters is clarified, which means, only the judgments on the merits, rather than those on procedural issues, could be recognized and enforced. It mainly refers to the judicial practice of different jurisdictions, the bilateral treaties, and the Convention of 30 June 2005 on Choice of Court Agreements ("Hague Choice of Court Convention").

Secondly, with regard to the legal effects of foreign judgments, the law of the country where the judgment is rendered shall be the basis to examine whether the judgment is legally effective and final. In judicial practice, this means the Chinese court must examine the legal effect of a foreign judgment. The applicable law shall be the law of the country where the judgment is made, so as to determine whether there is finality/conclusiveness of judgments required for recognition and enforcement by the Chinese courts.

Thirdly, the Fifth Draft has a new development for the acknowledgment of reciprocity. Under the Fifth Draft, even without a treaty or a precedent of recognition of Chinese judgments, foreign judgments could be recognized by Chinese courts based on future possible judicial assistance, i.e., "presumptive reciprocity".

Fourthly, the Fifth Draft provides for the examination of the jurisdiction of foreign courts, in principle, in accordance with the law of the country where the judgment is rendered. This does have exceptions, i.e., cases that fall within the exclusive jurisdiction of Chinese courts and those that do not involve foreign element, which are usually filed in foreign courts for the purpose of forum shopping and are subject to dismissal by the foreign courts on the ground of forum non conveniens and judicial economy.

Fifthly, punitive damages awarded in addition to actual damages are not recognized according to the Fifth Draft. But if the actual loss can be separated from the punitive damages, the actual loss can be recognized; otherwise (in case of inseparability) the court will refuse to recognize the entire judgment. The principle of judicial review procedure on foreign judgments is the same as used by other jurisdictions, i.e., Chinese courts adopt the general review procedure, instead of substantive review procedure, unless there is a violation of public order.

2.Key Articles of the Fifth Draft

Judge Song Jianli disclosed Articles 18, 19 and 21 of the Fifth Draft as follows:

Article 18 of the Fifth Draft –Examination of the principle of reciprocity

Where a party is applying for the recognition and enforcement of a foreign judgment in civil and commercial matters, and there is neither bilateral treaty nor international conventions between the foreign country and China, however, if any of the following circumstances is present, the Chinese court may, in accordance with the principle of reciprocity, recognize the foreign judgment:

(A) The foreign country has a precedent for the recognition of a Chinese judgment;

(B) According to the law of the country where the judgment is rendered, a Chinese judgment may, under the same circumstances, be recognized and enforced by the foreign court;

(C) On basis of the consensus on judicial assistance between China and the foreign country, the principle of reciprocity may be applied.

If the Chinese court shall, on the basis of the principle of reciprocity, recognize and enforce the foreign judgments, the decision issued by Chinese court shall be reported to the Supreme People’s Court and filed for the record.

Article 19 of the Fifth Draft –Grounds for non-recognition and non-enforcement

The recognition and enforcement of the foreign judgment, under the consideration of the principle of reciprocity, shall be refused under any of the following circumstances:

(A) In accordance with Article 21 of the draft, the foreign court has no jurisdiction over the case;

(B) The defendant has not been legally served, or not been properly represented in accordance with the law of the country where the judgment is rendered;

(C) The foreign judgment was obtained by fraud and bribery;

(D) The Chinese court has made a judgment on the same dispute; or the judgment given by the Hong Kong Special Administrative Region, the Macao Special Administrative Region, the Taiwan Region or the third country has been recognized by the Chinese court;

(E) The recognition and enforcement of foreign judgment will violate the basic principles of the laws, national sovereignty, security and public interests in China.

Article 21 of the Fifth Draft –Competence of foreign courts

Under any of the following circumstances, a Chinese court shall determine that the judgment-making foreign court has no jurisdiction:

(A) The case shall be subject to the exclusive jurisdiction of Chinese courts;

(B) The case has no foreign-related factors, or the foreign-related factors exist but there is no real and substantial connection with the foreign court in dispute;

(C) The parties concerned have entered into a valid arbitration agreement and have not given up the arbitration clause;

(D) The foreign court does not have jurisdiction over the case in accordance with the law of the country where the judgment is rendered;

(E) Other circumstances determined by Chinese law.

3.Judge Song Jianli's Viewpoints of the Three Articles above

He indicates:

Article 18 of the Fifth Draft is intended to clarify the reciprocity concept in detail. In facilitating judicial assistance and international trade, this provision is deemed to loosen the restriction on "de facto reciprocity" applied in previous judicial practice by Chinese courts, aided by an assessment of the laws and judicial practice in the country where the judgment is rendered.

According to Article 282 of Civil Procedure Law, if a bilateral treaty exists, the competent Chinese court might rely on the treaty to determine whether recognition will be considered. If such a treaty does not exist, the principle of reciprocity will be considered. Regarding reciprocity, in the past judicial practice, Chinese courts normally begin with an examination as to whether the foreign court has previously recognized Chinese judgments.

Article 19 of the Fifth Draft is intended to clarify some grounds for the non-recognition of foreign judgments. The domestic legislation and the relevant international treaties of all involved jurisdictions set the conditions to be followed, and are to be provided to the Chinese court at the same time as the provisions of the domestic court or forum to determine whether to recognize and enforce foreign court decisions.

The issue of foreign courts’ jurisdiction is expressed in Article 21 of the Fifth Draft, and this provision is intended to provide for the examination of the jurisdictional basis of a foreign court’s decision. Jurisdiction over the case is a prerequisite for litigation. The experience obtained from judicial determinations and treaties between China and other countries are reflected in this provision.

4.CJO’s Comments

(1) The First Circumstance of Principle of Reciprocity：the Consensus on Judicial Assistance

Reaching a consensus between the SPC and foreign supreme courts is more flexible and faster than signing an agreement of judicial assistance between China and foreign countries. Therefore, the SPC may incline to adopt this approach in the future. We are optimistic that there will be more consensuses to be reached.

Taking the Nanning Statement as an example, Article 7 clarifies the SPC's understanding of reciprocal relationships in the recognition and enforcement of foreign judgments, "If two countries have not been bound by any international treaty on mutual recognition and enforcement of foreign civil or commercial judgments, both countries may, subject to their domestic laws, presume the existence of their reciprocal relationship, when it comes to the judicial procedure of recognizing or enforcing such judgments made by courts of the other country, provided that the courts of the other country had not refused to recognize or enforce such judgments on the ground of lack of reciprocity".

The Nanning Statement indicates that Chinese courts may presume the existence of reciprocal relationships (i.e. ‘presumptive reciprocity’) and recognize judgments made by courts of the foreign country, provided there is no precedent that the courts of the foreign country had refused to recognize Chinese judgments. In fact, many countries do not have the opportunity to hear a case of applying for recognition of a Chinese judgment. If these foreign countries and China can reach a consensus similar to the Nanning Statement, Chinese courts may recognize their judgments.

(2) The Second Circumstance of Principle of Reciprocity: De facto Reciprocity

Article 18 of the Fifth Draft clarifies that if "the foreign country has a precedent for the recognition of a Chinese judgment", the Chinese court may, in accordance with the principle of reciprocity, recognize the foreign judgment.

The standard here is known as "de facto reciprocity" rule, i.e., a rule requiring the existence of a precedent of recognition. Comparatively, the consensus of the Nanning Statement can be briefly described as "non-existence of precedent of non-recognition", which is called "presumptive reciprocity" in China.

These two rules are contradictory in some circumstances, that is, if a foreign country has reached a consensus similar to the Nanning Statement with China, but the country not only has recognized but also has refused to recognize Chinese judgments. Under this circumstance, it seems that if the “presumptive reciprocity” rule is applied, Chinese courts will focus on the precedent of non-recognition and thus refuse to recognize the judgment from the foreign country, while if the “de facto reciprocity” rule is applied, Chinese courts will focus on precedent of recognition, and may recognize the foreign judgment accordingly.

However, in accordance with the expression of Article 18 of the Fifth Draft, Chinese courts may recognize foreign judgments as long as it conforms to any of the circumstances, be it the consensus (such as the presumptive reciprocity rule of the Nanning Statement) or the de facto reciprocity rule. Therefore, even if it does not meet the presumptive reciprocity rule (that is, there is a precedent of refusing to recognize the Chinese judgment), Chinese courts may also recognize the foreign judgment as long as it meets the de facto reciprocity rule (that is, there is a precedent of recognizing the Chinese judgment).

In addition, there are some points of view in China that the SPC should prescribe the presumptive reciprocity rule in the Judicial Interpretation. At present, this rule has not been stipulated in the Fifth Draft by the SPC, but only expressed in the consensus reached between China and some foreign countries. This means the de facto reciprocity rule instead of the presumptive reciprocity rule applies if such consensus has not been reached between China and countries concerned.

(3) The Third Circumstance of Principle of Reciprocity: De jure reciprocity

Article 18 of the Fifth Draft indicates that, even for a country without a precedent of recognizing the Chinese judgment, if according to the law of the country where the judgment is rendered, a Chinese judgment may, under the same circumstances, be recognized and enforced by the foreign court, the Chinese court may recognize the foreign judgment.

This article expresses the rule of de jure reciprocity, which is basically uncontested in discussions of different fields in China. The adoption of de jure reciprocity is largely encouraged and influenced by Israeli courts. The Israeli courts have recognized the Chinese judgment based on similar views.

However, it should be noted that Chinese courts' ability to ascertain foreign law is relatively weak, especially foreign laws in common law legal systems. Pursuant to China's law, Chinese courts shall bear the responsibility for the ascertainment of foreign law, unless the parties choose the governing law by agreement. Even so, we recommend applicants to provide foreign law to Chinese courts. Applicants may also consider entrusting institutions for discerning foreign law, which cooperate with the SPC and can provide expert opinions, in order to close the capacity gap of Chinese courts in this respect.

(4) Other Grounds for the Non-Recognition of Foreign Judgments

Article 19 of the Fifth Draft lists some grounds for Chinese courts to refuse to recognize foreign judgments. These grounds are similar to those set out in the judicial assistance agreements concluded between China and foreign countries. In practice, Chinese courts are indeed reviewing judgments based on these grounds, which arise little controversies in China at present.

(5) Reviewing the Competence of Foreign Courts in Accordance with the Law of the Country Where the Judgment Is Rendered

According to Article 20 of the Fifth Draft, when reviewing the application for recognition of a foreign judgment, Chinese courts will review whether the foreign court has jurisdiction according to the law of the country where the judgment is rendered.

There is a view in China that whether foreign courts have jurisdiction should be examined in accordance with China’s law. It seems that the Fifth Draft does not adopt this view.

As mentioned earlier, since Chinese courts have a poor ability to ascertain foreign law, it is also advisable for applicants to provide foreign law to Chinese courts, so that the Chinese judges can properly determine the competence of foreign courts according to the foreign law.

(6) Cases decided in the Foreign Judgment Have No Foreign-Related Factors or Actual Connection with the Country Where the Judgment Is Rendered

In terms of the examination of whether there are foreign-related factors, Chinese courts may still make their judgments according to China’s law, in order to make sure that purely domestic cases fall within the jurisdiction of Chinese courts, thereby safeguarding China’s judicial sovereignty.

Firstly, Chinese domestic cases (cases that do not have foreign-related factors) shall only be governed by Chinese courts.

According to Article 20 of the Fifth Draft, if the case does not have any foreign-related factors and is a purely domestic case in China, even if a foreign court has made a judgment on the case, Chinese courts can refuse to recognize such judgment.

As has been contested in China: whether parties in disputes that do not have foreign-related factors are allowed to choose a foreign court through agreement. So far, the SPC believes that a purely domestic case cannot be governed by a foreign court and the judgment given by the foreign court will subsequently not be recognized in China.

According to Article 34 of the PRC Civil Procedure Law (CPL), parties to the contract or other property dispute may choose by written agreement to be under the jurisdiction of the people's court at the place of domicile of the defendant, at the place where the contract is performed or signed, at the place of domicile of the plaintiff, at the place where the subject matter is located or at any other place that has actual connections with the dispute. If any of these five places locates outside of China, parties may reach an agreement to choose the foreign court.

Secondly, in cases involving foreign factors, the country where the judgment is rendered shall have actual connections with the dispute.

How Chinese courts determine the "actual connection" is still uncertain.

We believe that Chinese courts have a propensity to determine "actual connection" in accordance with China’s law. For example, if one of the above five places specified in the CPL locates within the jurisdiction of the foreign court, then the court can be considered to be actually connected to the case. However, whether the place is located within the jurisdiction of the court shall still need to be determined pursuant to the law of the country where the judgment is rendered.

If you would like to discuss with us about the post, or share your views and suggestions, please contact Ms. Meng Yu (meng.yu@chinajusticeobserver.com ).

If you need legal services for the recognition and enforcement of foreign judgments and arbitral awards in China, please contact Mr. Guodong Du (guodong.du@chinajusticeobserver.com ). Du and his team of experienced attorney will be able to assist you.